DBS Group (SGX: D05), Singapore’s largest bank, is the third and final bank to report its fiscal 2021 third quarter (3Q2021) results.
Just two days ago, OCBC Ltd (SGX: O39) and United Overseas Bank Ltd (SGX: U11) had reported strong earnings of S$1.2 billion and S$1.05 billion, respectively.
DBS handily beat those numbers with its 3Q2021 net profit coming in at S$1.7 billion.
To top it off, the lender also reported a record net profit of S$5.4 billion for the first nine months of this year (9M2021).
An interim dividend of S$0.33 per share was declared, up from the S$0.18 in the prior year.
For 9M2021, the total dividend per share stood at S$0.84, 21.7% higher than the S$0.69 paid out in 9M2020.
Here are five highlights from the bank’s latest earnings report card.
Flat revenue with lower allowances
For 3Q2021, DBS reported a 3% year on year decline in net interest income to S$2.1 billion as its net interest margin (NIM) weakened.
However, net fee and commission income climbed by 11% year on year to S$888 million.
After accounting for slightly lower other non-interest income of S$569 million, total income remained relatively flat year on year at S$3.56 billion.
Expenses rose by 8% year on year to S$1.67 billion, resulting in profit before allowances declining by 7% year on year to S$1.9 billion.
However, given the improving business outlook, the bank wrote back S$138 million of general provisions during the quarter and also booked lower specific allowances.
The sharp year on year reduction in allowances led DBS to report a record third-quarter net profit of S$1.7 billion.
NIM projected to rise
NIM, at 1.43% for 3Q2021, has continued to weaken, falling 0.02 percentage points from 1.45% in the last quarter.
However, the pace of decline appears to have moderated, with the drop from the second to the third quarter of 2021 being half of the decline in the second quarter.
For 9M2021, NIM fell by 0.22 percentage points from 1.67% to 1.45%, resulting in net interest income for the period falling by 9.4% year on year to S$6.3 billion.
There is a silver lining, though.
CEO Piyush Gupta believes that interest rates may be poised to rise, thereby benefitting net interest income in the coming quarters.
With inflation expected to rise next year, interest rates have a high probability of heading up as central banks act to tame price rises.
Healthy growth in loan book
Notwithstanding the NIM erosion, DBS’ loan book growth remained healthy, chalking up a 9% year on year increase to S$411 billion.
It was also a 2% increase over the loan amount in the second quarter.
Growth in the lender’s loan book was driven by increases in both non-trade corporate loans and consumer loans.
In particular, housing loans rose by S$1 billion as the property market remained resilient, while consumer loans jumped by S$2 billion as more people tapped on wealth management.
Record-high fee income for 9M2021
The bank’s fee income for 9M2021 jumped by 17% year on year to S$3.1 billion, hitting a record high.
The main contributor was a 23.2% year on year surge in wealth management fees to S$1.4 billion.
Card fees also increased by 10.8% year on year as consumer spending continued its recovery to pre-pandemic levels.
However, travel-related spending remained low as borders only started reopening from September onwards.
Wealth management assets under management rose by 13% year on year, reflecting continued fund inflows for DBS.
Optimistic business outlook
DBS’ business outlook remains sanguine, with CEO Piyush stating that the lender’s pipeline remains healthy as 2022 approaches.
Total allowances are also likely to “remain low” and he sees encouraging business momentum despite supply chain worries and China’s regulatory crackdowns.
The bank expects loan growth to be in the mid to high single digits for 2022 while fee income should grow by double digits year on year.
DBS has also provided an update on recent acquisitions.
The Lakshmi Vilas Bank acquisition is proceeding smoothly and will boost the lender’s Indian growth prospects.
Its recent acquisition of a 13% stake in Shenzhen Rural Commercial Bank in China has been approved and contributions should flow in from this quarter onwards.
And DBS’ China securities joint venture is also off to a positive start by sealing two deals thus far.
Get Smart: Spending more for growth
Just this week, the bank announced its intention to invest S$300 million next year to boost its digital and intelligent banking capabilities.
This amount will be 14% higher than the sum spent this year and will go towards upgrading its technology infrastructure and hiring more talent.
By doing so, DBS aims to provide more customised financial solutions and personalised advisory for customers.
The launch of its in-house DBS Client Connect offers customers a one-stop tool to alleviate customer pain points and provide relationship managers with a holistic view of the customer so that they can tailor optimal solutions for them.
These are exciting times for investors as the bank is in a great position to put the pandemic behind it and capture further opportunities to grow its franchise.
Dividend-seeking investors alert! 2022 is promising to be a year where dividends are set to increase as businesses shake off the worst of the downturn and companies that previously held back are now free to resume their payments. Want to know which are the stocks poised to do well next year? Download our special FREE report, Top 9 Dividend Stocks for 2022 – and 3 Tactical Shifts to Maximise Your Profits! Get an early start to 2022 by CLICKING HERE now!
Disclaimer: Royston Yang owns shares of DBS Group.
